Correlation Between Essential Utilities and Consolidated Water

Can any of the company-specific risk be diversified away by investing in both Essential Utilities and Consolidated Water at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Essential Utilities and Consolidated Water into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Essential Utilities and Consolidated Water Co, you can compare the effects of market volatilities on Essential Utilities and Consolidated Water and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Essential Utilities with a short position of Consolidated Water. Check out your portfolio center. Please also check ongoing floating volatility patterns of Essential Utilities and Consolidated Water.

Diversification Opportunities for Essential Utilities and Consolidated Water

0.0

Correlation Coefficient

Essential Utilities  Consolidated Water

Pay attention - limited upside

The 3 months correlation between Essential and Consolidated is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Essential Utilities and Consolidated Water Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Consolidated Water and Essential Utilities is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Essential Utilities are associated (or correlated) with Consolidated Water. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Consolidated Water has no effect on the direction of Essential Utilities i.e., Essential Utilities and Consolidated Water go up and down completely randomly.

Pair Corralation between Essential Utilities and Consolidated Water

Given the investment horizon of 90 days Essential Utilities is expected to generate 0.9 times more return on investment than Consolidated Water. However, Essential Utilities is 1.11 times less risky than Consolidated Water. It trades about 0.14 of its potential returns per unit of risk. Consolidated Water Co is currently generating about -0.04 per unit of risk. If you would invest  3,603  in Essential Utilities on February 3, 2024 and sell it today you would earn a total of  165.00  from holding Essential Utilities or generate 4.58% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Essential Utilities  vs.  Consolidated Water Co

Essential Utilities

Risk-Adjusted Performance

6 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Essential Utilities are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Essential Utilities may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Consolidated Water

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Consolidated Water Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's fundamental indicators remain very healthy which may send shares a bit higher in June 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Essential Utilities and Consolidated Water

The main advantage of trading using opposite Essential Utilities and Consolidated Water positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Essential Utilities position performs unexpectedly, Consolidated Water can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Consolidated Water will offset losses from the drop in Consolidated Water's long position.

The idea behind Essential Utilities and Consolidated Water Co pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.